M UpdateFinancials | JapanWhat We're Hearing From Global Investors We wrap up key topics of interest to global investors now. Morgan Stanley MUFG Securities Co., Ltd.+Mia NagasakaEquity Analyst Mia.Nagasaka@morganstanleymufg.com +81 3 6836-8406 BanksJapanIndustry ViewAttractivePositioning in the Japan financial sector: Investors seem quite interested in bank stocks, given the possibility of changes in Japan’s monetary policy in 2024. Although some investors are telling us they favor non-life insurance stocks that are not sensitive to interest rates since a NIRP exit might already be priced into bank stocks, there is relatively strong interest in bank stocks and investors are likely to select stocks with good prospects for EPS upside as interest rates normalize. Our stock selection has long highlighted company-specific factors (probability of being able to raise ROE via own efforts) in addition to macro catalysts, and differences in the magnitude of margin improvement and the speed with which effects are realized based on company-specific strategies. We remain OW on SMFG, SMTH, JP Bank, Tokio Marine Holdings, and Orix. Read-across from US bank results: We are getting a lot of questions about implications from major US banks’ results (December quarter) for Japanese financial institutions’ earnings. 1) Investment banking business: IBD fees were up 3% YoY for US banks, thanks to strength in DCM (up 33% YoY), and ECM (up 13% YoY), while M&A fees were still down 13% YoY. Trading business: FICC revenues were down 11% YoY at US money center banks (although that's skewed by one-offs at one bank, and weakness in rates and macro products at another) (see report). While these trends suggest Nomura Holdings’ global markets revenue might have been weak for interest rate products, we expect securitized products for which the company has a high market share to gradually start to recover (see report). 2) Credit cycle: We hear concerns in exposures in US office CRE loans, but most of the banks in our coverage have increased their risk tolerance. The market will likely be concerned about Aozora Bank (see report) and Tokio Marine Holdings' (see report) exposure to CRE loans and their costs could exceed plan, but we expect their F3/24 results to be broadly in line with guidance (see report).As to "What about the monetary policy outlook?", please refer to the next section.Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= A...
